Passing inheritance directly to grandchildren?

[CorvusPurpureus]

Apologies - I know the person concerned should just see a FA or lawyer, but they keep asking me questions I can't answer!

Imagine you are a woman in your 70s, fairly recently widowed & financially well off. You are in good health both physically & mentally, but might sell up the large family home soon so as to move to somewhere more manageable.

You have always assumed that your estate will pass equally to your 2dc, who are in their early 50s/late 40s. There are equal numbers of dgc in each dc's family.

Recently, it has occurred to you that (coming from a long lived family, having been a young mum, & feeling in fine fettle) that your dc are unlikely to inherit from you before their 60s or 70s - both of them are financially comfortable.

If you do keep going well into your 80s or 90s, however, your currently teenage/20 something dgc are going to be aged between 30-50, may very well be buying homes, starting families or funding schooling or HE for your potential dggc.

You are considering skipping a generation & splitting your will between the dgc.

In theory this means the estate goes 6 ways, not 2.

Both middle aged dc are fine with this, & agree it sounds completely reasonable.

Any pitfalls?

For disclosure I'm one of the adult dc. Only problem I can see is dm dying earlier than she expects to, at which point at least some of the dgc would still be teenagers & might not manage their inheritance sensibly. But it could be left in trust until they're a bit older?

All advice gratefully received!

Of course dm may require elder care & that diminish the pot considerably, but that would be the same if dsib & I inherit.

We are both minded to bung any inheritance straight at our dc (dm's dgc) if the will stays as is, but none of us know if there are advantages/disadvantages to her just cutting out the middleman & changing her will now.

I don't think there are, but obviously talk to a lawyer. Also check out that if there is any inheritance tax to be paid that they are in a position to be able to pay it.

^^ but that may not be relevant. Such a complex area.

Sounds ideal to me (with the caveat that it's held in trust till age 21, or even a bit older).

We're a similar age, and assuming we inherit anything we'll simply pass straight onto our dcs as although we have a comfortable lifestyle, and high value property we have no savings to speak of and won't be able to help our dcs with a house deposit. Unless we sell but we don't want to do that for a good while yet.

This happened in our family and I cannot stress how helpful it has been for the grandchildren.

Unfortunately grandparents died when the GC were in their teens, but the money was put in trusts for them until they were 25. All of the GC used the money for house deposits when they turned 25 - I'll add the GC weren't told of their inheritance until they were 25 and were able to use it.

Definitely take professional advice on how to structure it or what trust to use, but it has made a huge difference to the lives of the GC (much more than it would have made to their parents).

Same number of children on each side? That can influence things.

I'm in Ireland so may be different in the UK, but inheritance tax levels here mean that the size of the estate being left is the most relevant factor.
The untaxed amount for children upon inheritance is much higher than that for grandchildren.
There is also a higher gift tax exemption for children than grandchildren, so it may make more sense for you and your sib to inherit and then gift it to your children.
The tax rates should be on the HMRC website so worth a google.

@picklemewalnuts

Same number of children on each side? That can influence things.

Yup. I have 3dc as does dsib.

There were some...interesting...discussions years ago as dsib has one stepchild (very much a child of the family, father long vanished) but that was all sorted years ago - fully accepted as a dgc now.

So each of us has 3dc who would inherit equally.

Can't you just do a deed of variation for your 50% when/if you get it to pass directly to your kids.

Under current law when the parent dies if the children want to give it instead to the GC they can do a will variation - they did that for Princess Diana and for the Milliband family (and my father did it too when our mother died) That leaves the children the chance to decide at the time perhaps based on if the GC are on drugs or with a partner they are about to divorce or whatever...

Might be simpler/better to leave to the adult children and then they can use a deed of variation to redirect it to their children instead if that is what works better when the time comes.

Executors have two years to vary a will using deed of variation and then any distributions are treated for tax as if that was what was set out in will originally. (Whereas if you followed the original will and then gifted onwards that brings up inheritance and maybe capital gains tax issues.)

The untaxed amount for children upon inheritance is much higher than that for grandchildren.
There is also a higher gift tax exemption for children than grandchildren, so it may make more sense for you and your sib to inherit and then gift it to your children.

That's not how inheritance tax works in the UK.

This happened in my family but not the same circumstances but I'll outline how it went; Person that died had three children. One of whom was a bit of a liability, set up countless businesses that always went bankrupt but was generally a bit of a bad egg. When person died the estate was split into three but liability's share was then divided between liability's two kids. Liability hit the roof and it caused big family fall out!
Make sure you tell everyone what your plans are so that no one contests the will.

My Greatgrandfather was insanely lucky (skilled??!!) betting on the horses, and died a very wealthy man in terms of money of the day. He split it evenly between his 2 children and 3 grandchildren. It meant my parents were mortgage free at a young age, and as such I had a comfortable childhood with one working parent.
My grandmothers will was similar - left between my mother (only child) and me (only surviving grandchild), with a small, but significant amount for both of my kids (think a first car amount).

If there is sufficient wealth in the first generation, skipping a generation, or spreading money between generations can make a massive difference to the younger generation, giving them options and opportunities their parents have already sacrificed for or gone without.

As others have mentioned, if the will leaves it all to you and your sibling, you can do a deed of variation to leave some or all of it to your kids. It removes the possibility of the money being forced to be used for your care, or possibly have inheritance tax paid on it twice - that depends on the amounts involved tho.

It can cause problems if the kids are too young and spend recklessly, or if the skipped generation needs the cash.

My friend had this with her parents. In the end it was left to her. She is happy with this as her dc are 19 and 21. So she has used it to buy an investment property for now which she will sell when the kids are older and ready to settle down. If they had been older, nearer 30, she would have just split it between them.
They have no idea that is her intention.

my parents decided to massively downsize in their 70's whilst fit and able to clear out family home. They have each of their 4 children a decent sum of money at that point knowing that if they died within 7 years, there was enough money in their retirement flat to pay back any money owed under the 7 year rule.
Consequently, their final estate is now divided between the 13 grandchildren. If they both live to a good age, the GC will range from late 20's to late 30's so a nice time to inherit.

Thanks all. Inheritance tax is an issue.

Assuming dm passes on her current estate, & the family tendency is to manage perfectly happily before abruptly dropping dead aged roughly 90 - I know, sounds horribly flippant but generally that's how all grandparents & great aunts etc on that side of the family have checked out, & is definitely how dm sees her future - then she'd want as much as possible of her money to go to her grandchildren. On that basis, it'll be a hefty amount all round, to be honest - enough to significantly defray mortgages or cover a good whack of uni expenses for future offspring.

I suspect ds would spend his on a Porsche & some jolly good holidays, tbh, which is why I'm a tad cautious. Until he's about 40 .

Dsib & I don't need her money & would definitely want it to go to our children (in trust if for minors).

But I'm slightly concerned about the IHT mentions upthread. Are 6 'chunks' better than 2 in this respect? Otherwise, the deed of variation possibly sounds more sensible.

IHT gets paid first, then the estate distributed, so from that point of view if makes no difference whether it goes to you and your sibling, or direct to her grandchildren in trust till age 40

The IHT will be a flat rate however many are in the will BUT if your mum passes on enough to you to tip your estate over inheritance tax limits, it will then get taxed again going to the kids. If you dont need it, and it goes straight to the kids, it won't get taxed in 40/50 years when you depart this earth.

I would definitely stick with a deed of variation. Things can change so much, you might not need the money now but we don't know what the future holds. The fact that you think one gc would blow it all on a Porsche says that you don't trust them to make sensible choices.

My grandmother did it and it set up three kids up nicely. We had large deposits on our first homes that we would not have had otherwise at a young age. Forever grateful. And now my mother is doing the same thing. If she lives into her 80s, I'll be in my 60s and already set up. My son and his cousins will benefit in their 20s and it will help them so much more.

Be very careful- mils father did this. The grandchildren tried to gift it back to their parents via a trust and the whole estate was lost to lawyers fees.

If you leave your main residence to grandchildren it needs to go to them absolutely and not held on any sort of trust or you risk forfeiting your main residence nil rate band

@InTheLongGrass

The IHT will be a flat rate however many are in the will BUT if your mum passes on enough to you to tip your estate over inheritance tax limits, it will then get taxed again going to the kids. If you dont need it, and it goes straight to the kids, it won't get taxed in 40/50 years when you depart this earth.

Why would it be taxed again if left to the gc?

@MsTSwift

If you leave your main residence to grandchildren it needs to go to them absolutely and not held on any sort of trust or you risk forfeiting your main residence nil rate band

It can be sold and then the proceeds put into trust. No concerns about main residence then.

My mums friend left her money to the grandchildren (2) as her only son was married had his own successful business etc.
Things went badly wrong for her son after she died, he and his wife are now struggling on benefits due to a disability. Meanwhile the grandkids are living the high life, wasting grandmas money on drugs, holidays and other nonsense. No thoughts of helping out their parents.
I would suggest leaving money to adult children who can then fund university fees, house deposits, large weddings or whatever their child needs when grown up.
Grandchildren may still have time to go off the rails, which may be a disaster if they have plenty of money!